They are (allegedly) thinking that on one side, PlayStation is eating their lunch with cheaper consoles (even with "NO GAEMS?!"), and on the other side, gaming PCs already offer every game that Xbox Series has. So they could pivot it to become a gaming PC that offers better value than what people are buying or building.
If it does run full Windows or at least offers Steam integration, then you won't be beholden to whatever bad pricing M$ offers, you can get with the Steam sales. Perhaps you could even pirate games easily directly on the machine. At hypothetical $800 pricing, the Magnus APU would offer performance that is found in today's $1,500+ pre-built gaming PCs (it's probably faster than the 9070 XT).
Whatever the pricing, if they are selling low tens of millions of a custom APU, they could undercut others in the market. Much to their chagrin.
Sharing a graphics chiplet with AMD's discrete gaming and workstation GPUs means more flexibility if demand for any of these products is lower than expected.
If you can't afford a sub-$1000 gaming PC then you should do something else with your time, or play ancient games on a $100 throwaway PC. But if the base price ends up around $800, they'll definitely have SSD or other options taking it up higher than that.
Is it a good idea? I don't know. But it's more interesting than the crap that they have now.